Why Pension Annuities Aren’t Dead
Wait… Aren’t Annuities a Thing of the Past?
For years, annuities were the go-to option for retirement income. You were essentially strong armed into buying one—until pension freedoms came along in 2015 and suddenly, drawdown became the new favourite. But here’s the thing: annuities aren’t dead. In fact, they are and have been making a comeback.
With higher interest rates and greater financial uncertainty (thanks, Trump) annuities are regaining appeal for those who want certainty, stability, and a guaranteed income for life.
So why might you want to reconsider writing them off.
1. Guaranteed Income = Less Retirement Stress
If the idea of the up’s and down’s of the markets in retirement stresses you out, an annuity offers a simple alternative: a guaranteed income for life. No stock market swings, no surprises—just money hitting your bank account every month, no matter what.
✅ Great for: People who value peace of mind over chasing investment returns.
2. Interest Rates Are Higher = Better Annuity Rates
Annuity rates are closely tied to interest rates and gilts. A few years ago, when rates were rock bottom, annuities looked like a terrible deal. But now? Higher rates = bigger payouts.
Example: A 65 year old, with a single life £100,000 annuity purchase, today, could provide significantly more guaranteed income than the same amount would have five years ago. A 6% annuity rate would guarantee you £6,000 per year, for life. If you ruled out annuities in the past, it’s time to take another look. If you have a medical condition, that rate would be even higher
3. You Can Mix & Match with Drawdown
It doesn’t have to be all or nothing. A common strategy is to use an annuity to cover essential expenses (like bills and housing) while keeping some pension funds in drawdown for flexibility.
✅ Example strategy:
Use an annuity for core living costs.
Keep the rest in investments to allow for growth and flexibility.
This way, you get the security of an annuity and the freedom of drawdown.
4. Annuities Aren’t Just ‘One-Size-Fits-All’ Anymore
Many people think annuities mean giving up control forever. Not necessarily. There are more flexible annuity options these days, including:
🔹 Fixed-term annuities – Pay out for a set period (e.g., 10 years) instead of for life. 🔹 Inflation-linked annuities – Adjust payments in line with inflation, so your spending power doesn’t erode. 🔹 Joint-life annuities – Continue payments to a spouse if you pass away. 🔹 Guaranteed periods - Pay out to a beneficiary should you die within a set period (e.g., 5 or 10 years).
5. The ‘Risk-Free’ Option in an Uncertain World
Markets go up, markets go down. If you're relying solely on investments for retirement income, a market crash at the wrong time can be financially devastating.
An annuity eliminates that risk—you get paid the same amount no matter what happens.
Final Thoughts: Time to Reconsider?
Annuities aren’t the ‘boring, outdated’ option they once seemed. With higher rates and more flexibility, they offer something no other retirement strategy can—100% guaranteed income for life.
So, are annuities really dead? Not even close. They might just be the retirement safety net you didn’t realise you needed.
p.s. not advice obvs!
This article would be correct as at the time of writing but as our lovely Government kindly reminds us; rules and regulations can change. Seek advice before taking any action.